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TAX planning is always seen with an isolated view of saving tax. This myopic view hurts individuals in the form of lower post tax income, higher costs and a hodge-podge of investments accumulated over a period. Contrary to this approach, tax planning should be seen within the broader framework of financial planning. Hence, one must start this process from April 1. However, for the late bloomers, there is still time and rather than rushing into it, take a holistic view of your liquidity needs, goals, return objectives and risk profile and then make a prudent choice.

Here are some of our thoughts on how one should look at tax planning:

• Are you contributing to EPF?
• Have you taken a home loan?
• Are you paying your children's school fees?

If you are doing any of the above, it means you already contribute to tax saving instruments under Section 80C. Calculate how much amount you have already paid towards home loan principal or as your contribution to Employees Provident Fund or children's school fees. Add all three and deduct this from Rs 1 lakh. The difference is all that you need to invest and I have discussed options below. However, for those who are not exposed to any of the above 3 questions, take a holistic view of your situation.

Do you need a house? Go for it. You will get a deduction on the principal investment as well as the interest component of the loan. At such high property rates and in such a short period of time (till March 31, 2008), this does not seem a viable option but from a long-term perspective, it certainly would.

Do you have any dependants and liabilities? If yes, and if you are in the accumulation phase (between 25-50 years), do a needs analysis and look at insurance. The premium is covered under Section 80C. Go for pure risk cover also known as term insurance. This is the purest and cheapest form of life insurance. Let's say you are a 30-year-old male and you take a term insurance for Rs 10 lakh for 20 years. Should you die during this period, your nominee/ beneficiary will get Rs 10 lakh. The annual premium that you will pay will be just Rs 3,000.

If you want a fixed return investment, then you have many options. If you are salaried, opt for the Voluntary Provident Fund. Also opt for the Public Provident Fund. Though some insurance options and National Savings Certificate also fall into this category, EPF, VPF, PPF and Senior Citizens Scheme (from next year) still hold good. Unit Linked Insurance Plans are very popular these days. Most insurance and ULIP policies are sold during February and March.

Due to the transaction costs, high sales and other costs, ULIPs eat into your returns. We strongly advocate looking at Equity Linked Savings Schemes instead. These are mutual funds that invest in stocks and give a tax benefit under Section 80C. In the current context of the market, lump-sum investments would be a good bet and considering the current situation and a strong growth rate in the economy and corporate earnings, you can expect good risk-adjusted returns over the next few years. What's the right choice? There is no silver bullet here. While VPF has no limit (but varies with each company), PPF has a limit of Rs 70,000, ELSS does not have any limit and you can invest Rs 1,00,000 in it. When compared with PPF, NSC and traditional insurance plans, the returns from ELSS are the highest. Even as equities provide high returns over the long term, it's a risky asset class. It is prone to volatility and there could be periods of negative returns. However, liquidity is the shortest in ELSS.

The final step is to decide which fund to invest in. And as the choice keeps increasing, choosing a fund is going to be even more difficult. Therefore, investors should choose their funds with utmost care. Look at consistency rather than a one-off performance. Opt for funds with proven track record in good as well bad times and experienced managers. Goal of this exercise should be to maximize post tax income. Have you just been investing to save tax? Or, do you look at post-tax returns and whether this investment is relevant to your overall situation?

Goals will help you decide your investments. When looking at the Rs 1,00,000 component under Section 80C, keep all the above parameters in mind. Then you can decide how much should go into equity, debt, insurance and real estate.